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Arcadia brand split ‘would give focus’

Industry sources have backed the rumoured separation of Arcadia’s brands, and say the proposition would allow the group to remain competitive.

Media reports claimed the company has already started “untangling shared functions such as human resources and IT”, following the approval of its seven company voluntary arrangements in June and the withdrawal of legal challenges by two US landlords, Vornado and Caruso, against the CVAs last week.

Arcadia denied the claims, and said: “Following the formal completion of the CVA process last week, the board is now fully focused on implementing its turnaround plan across all its brands.”

However, industry observers said Arcadia should consider splitting the brands.

One Arcadia supplier said: “From what we know, Arcadia has been preparing to split up the brands for a long time. Some parts are saleable, and some aren’t – Topshop/Topman is the jewel in the crown. However, [the group has] huge pension deficits, so I don’t know how they will be split between the brands.”

Another Arcadia supplier said: “The obvious and most sensible thing for Philip to do is to try and split the group. However, the problem with this is the massive pension deficit and whether he will allocate it accurately. What will Philip allocate to what company?

“Even if he is able to sell or close the brands, the reality is the deficit will never go away.”

Richard Lim, chief executive of research consultancy Retail Economics, said: “Being able to segment the brands that have the biggest brand equity and focus on that core customer audience would be a good move. A simplified business model will allow them to dedicate the resources to drive the areas that are underdeveloped and behind competitors.”

Peel Hunt analyst John Stevenson agreed: “Topshop has always been the iconic brand, and it’s the one where they can be relevant, but it has suffered in the face of the online competitors.

“You could point to Boohoo as a group that can leverage supply chain, marketing and distribution [across the group] but, with waning brands, I’m not sure that [Arcadia] has many advantages of having the whole thing together. It will benefit from a bit of focus.”

He added that potential buyers for the smaller brands including Burton, Dorothy Perkins and Wallis, could include private equity investors: “You would get private equity [firms] who are interested to run the more tired brands for cash, rather than trying to regain a position at the top of the market.”

However, Jonathan de Mello, head of retail consultancy at property firm Harper Dennis Hobbs argued that buyers would not be attracted to Arcadia’s troublesome store estate: “I’m not sure that Philip Green has done his due diligence. Arcadia’s physical stores are distributed across the UK, in primary but also secondary centres where retailers don’t want to be any more. Anyone that buys those businesses will be taking on that legacy estate.”

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